While negative gearing has long been used as a tax minimisation strategy, experts remind investors that it is not a strategy for everyone. Find out how negatively geared properties can fit in one’s investment journey.
Essentially, negative gearing occurs when the rental income that the investor earns from their property is less than the outgoing expenses including deductible losses, mortgage, insurance, management fees, maintenance and repairs, council and water rates and so forth.
As such, the investor will have to pay money out of their own pocket so they could continue holding the property.
Still, despite the loss, many investors opt to acquire negatively geared properties, wait for them to grow in value so they can sell for a profit in the future. They enjoy the benefit of a tax deduction on the investment loss.
By implementing negative gearing as a strategy, the property-related costs are, in essence, paid for by your tenant through rental returns, by the Australian Taxation Office through tax savings and by your own surplus cash flow.
How can investors know if this strategy fits their wealth-creation journey?
Smart Property Investment lays out the most common advantages and disadvantages of investing in negatively geared properties:
Before ultimately making any major investment decision, investors are strongly encouraged to do their due diligence and engage professionals, where appropriate, in order to get a better understanding of the strategies that will be fit for their wealth-creation journey based on their personal and financial goals, capabilities and limitations.
This information has been sourced from Australian Securities and Investments Commission (ASIC) and the Smart Property Investment website.